Earnings and data trigger broad rally, oil pares gains post big build

US stocks rallied after a strong round of earnings, a welcomed dip with core producer prices and a new cycle low with weekly jobless claims.  Investors remain committed to stocks as the current inflationary environment won’t likely trigger a rapid interest rate hiking schedule from the Fed.  Real yields will still remain in negative territory in the foreseeable future and that should provide a safety net for stocks. 

US Data

Wholesale producer prices delivered a smaller-than-expected increase of 0.5% for September and 8.6% year-over-year.   The tentative easing of prices paid to US producers was impacted by 16.9% month-over-month decline in airline passenger services.  Commodity prices are still headed higher and since supply can’t keep up with demand, the next PPI report will likely post larger advances. 

Weekly jobless claims dropped to 293,000, a new cycle low, and a strong beat of the 320,000 level.  Falling below the 300,000 level is a big deal as it suggests we could see it back to the low 200,000 levels we saw pre-pandemic.  Continuing claims declined by 134,000 to 2.593 million.  The number of Americans participating in all unemployment insurance programs fell 523,426 to 3.65 million.  As families become more confident schools will remain open, the labor shortage problem could improve as more Americans will be incentivized and/or feel comfortable returning to the workforce. 

Earnings

The banks painted a strong and healthy picture of the US consumer.  During the pandemic, we were used to seeing JPMorgan results always impress, but this time Bank of America, Morgan Stanley, Citigroup, and even Wells Fargo delivered strong results.  Wall Street can’t turn negative on the economy after seeing reserve releases, moderating trading revenue, mixed loan growth, and a consumer willing to take on debt.

Oil

Crude prices rallied in early trade after the Climate Prediction Center and the International Research Institute for Climate and Society predicted the US could have a cold, wet winter.  If La Niña delivers another cold winter, the natural gas crunch will continue to lead to added demand for crude.

The commodity boom is still in place, but crude prices had to pare gains after US stockpiles posted a surprisingly huge build.  The EIA crude oil inventory report posted a headline 6.1-million-barrel increase, much more than the anticipated 521,000 expected build.  There is a lot in this report, but the three big takeaways are that inventories posted a big build as refinery runs plunged, but some of that could be attributed to seasonal maintenance.  Secondly, US production ticked higher and it will probably continue to do so, but will not come anywhere near the levels seen during the Trump administration. Lastly, demand was mixed; jet fuel demand weakness remains, distillate demand impresses as supply chain issues are keeping truck drivers busy, while gasoline increased but still nowhere near pre-pandemic levels.

Any dips in oil prices are quickly being bought by energy traders.  WTI has decent support at the $80 level and if that holds, short-term resistance from the $83 level might not put up much of a fight.

Gold

Gold prices can’t break past $1800 after solid earnings and positive data for the economy delivered a broad-based rally on Wall Street.  Investors are mostly convinced that large parts of inflation will prove to be persistent, which is why commodities should see strong support for the rest of the year. 

With real yields likely remaining in negative territory even as the Fed debates interest rate hikes next year, the outlook for gold should turn bullish for many traders.  The dollar still might have some support in the short-term, but eventually that will unwind.  Gold’s bullish rebound is facing a plethora of resistance around the $1800 level, but eventually it should make a run towards the $1840 region.     

Bitcoin

Bitcoin prices are rallying as global cryptocurrency adoption skyrockets.  The latest Chainalysis Global Crypto Adoption Index shows massive growth across emerging markets and that trend will continue as investors abroad scramble for inflation hedges. 

Crypto traders also shrugged off BOE’s deputy governor Cunliffe’s warning that Bitcoin could trigger a 2008-level meltdown.  Russia President Putin also made some comments on cryptos, noting that they have value, but shouldn’t be used for trading oil.  Bitcoin is not centralized anymore now that China is out of the picture and further support from a wide range of countries is always bullish for cryptos.